Fed will lower interest rates – But Trump still won’t be happy |

Stocks soared after our strongest signal Fed Preparing to lower interest rates again this fall. But how long can this celebration last?

When Wall Street Chairman Jerome Powell delivered the biggest title of his speech at Jackson Hole workshop in Wyoming, Powell also had a look at where long-term interest rates could settle.

“We are not sure when interest rates will drop in the long run, but their neutrality levels may now be higher than in the 2010s,” Powell said.

In other words: Even if the Fed does start lowering interest rates again this year, they may not be lagging behind the level of large communities. Despite short-term optimism about reducing potential speeds, this is a signal that the Fed’s long-term outlook is more volatile.

Oxford economist Ryan Sweet economicsexplain.

Higher rates mean borrowing (such as mortgage) will be more expensive. When the interest rate is close to zero in 2021, the average 30-year fixed mortgage rate is less than 3%.

Average mortgage loans now speed Nearly 6.7%. Coupled with the recent record high-priced home prices, high mortgages mean that many Americans will continue to work hard to buy homes.

Although Trump has been promote The Fed has lowered interest rates to 1% in a few months, claiming that Powell “has seriously hurt the housing industry” and it seems unlikely that it will be possible to return to such levels any time soon.

The Fed is trying to achieve a golden balance. Risk unemployment rates are too high, and low interest rates may mean higher inflation. Decision makers are looking for a “neutral” level and everything is right.

Many economists believe that central banks are close to achieving this balance before Trump begins his second term. In the summer of 2022, as inflation expands at the highest level of a generation, the Fed began raising interest rates, risking damage to the labor market, trying to reduce inflation to 2%.

In less than two years, interest rates rose to about 5.3%, but the job market remains strong. Even if inflation drops, unemployment remains historically lower. Although some economists fear that rapid rate hikes will be sold The U.S. economy Instead, the Fed appears to have achieved what is called a “soft landing.”

But when Trump returned to his office, things were thrown into the tail and there were campaigns pledging a full-scale trade war against the major U.S. trading partners.

The president has long believed that tariffs will boost U.S. manufacturing and lay the foundation for better trade deals. Trump announced in January that “taxes don’t cause inflation. They lead to succession.” He acknowledged that there could be “some temporary short-term disruption.”

But so far, success has been limited. economist Suspect These policies will produce a manufacturing revival, and Trump’s trade war has inspired new trade alliances that exclude the United States.

All along, American consumers are starting to see higher prices due to Trump’s tariffs.

Powell said on Friday that tariffs have begun to raise some prices. In June and July, inflation was 2.7% – up 0.4 percentage points since Trump announced most of the tariffs for the first time since April.

This is still just a modest increase in price growth, but most of the White House’s highest tariffs came into effect only in early August. Fed policymakers are waiting to see if Trump’s aggressive trade strategy will lead to a one-time shift in price levels, or whether it will continue to work.

The once strong labor market is getting lower and lower. Despite the fewer job openings, few people are looking for a job. Powell called it “a strange balance” in which “both supply and demand for workers slowed down.” He noted that balances are unstable and may eventually tilt, prompting more layoffs and rising unemployment rates.

This instability in the labor market has made Fed officials more open. Powell noted that the slackness in consumer spending and weak GDP (GDP) suggests an overall slowdown in economic activity.

Although it immediately set the stage for a downgrade next month, Powell’s speech was far from optimistic.

“In this environment, it is difficult to distinguish between cyclical developments from trends or structural developments,” he said. “Monetary policy can stabilize cyclical fluctuations, but it will not help changing structural changes.”

From Powell who is usually diplomatic and retained in public statements, it seems like a careful warning: when policy enforcement destabilizes economic stability, the Fed can only do a lot to limit damage.